The Treasury is estimated to have lost Rs 58,521 crore in taxes in 2019-20 due to illicit trade in goods in 5 major industries including FMCG, mobile phones, tobacco products and alcohol, a Ficci report said on Thursday.
The report estimates the size of illicit markets in these industries at just over Rs 2.60 lakh crore for the year 2019-20, with the FMCG industry accounting for 75 percent of the total illicit value of goods in five major industries.
“The estimated tax loss to the government from illicit goods in these five major industries is Rs 58,521 crore,” according to the report titled ‘Illicit Markets: A Threat to Our National Interests’ by FICCI’s Committee Against Smuggling and Counterfeiting Activities Destroying the Economy ( CASCADE).
The two highly regulated and taxed industries, tobacco products and alcoholic beverages, account for nearly 49 percent of the total tax loss to the government from illicit markets in these five key industries.
Maximum number of jobs (7.94 lakh) were lost due to illegal trade in FMCG packaged food industry followed by tobacco industry (3.7 lakh), FMCG household and personal goods industry (2,989 lakh) , the alcoholic beverage industry (97,000), and mobile phone industry (35,000).
The tax loss to the government due to illegal trade in these five sectors was Rs 17,074 crore (FMCG packaged food), Rs 15,262 crore (alcoholic beverages), Rs 13,331 crore (tobacco products), Rs 9,995 crore (FMCG household and personal goods), and Rs 2,859 crore (mobile phones).
“The impact of the illicit market of these key industries on the economy is ubiquitous and significant due to the backward links of these industries to other sectors of the economy, resulting in a multiplier effect. The higher the multiplier, the greater the overall effect on the economy the report said.
Out of the total illegal market size of Rs 2.60 lakh crore, the FMCG industry (household and personal goods, packaged food) makes up more than Rs 1.97 lakh crore. This is followed by alcoholic beverages at Rs 23,466 crore, tobacco products (Rs 22,930 crore) and mobile phones (Rs 15,884 crore).
The report highlights that addressing the threat of illicit markets in India, addressing the supply and demand gap of legitimate goods, strengthening the domestic manufacturing sector, raising consumer awareness, rationalizing tariffs to reduce tax arbitrage, creating a favorable environment for innovation and better international coordination and cooperation are some of the next steps.
Overall, collaboration of all stakeholders and concerted efforts by government, industry, consumers and international agencies are needed to accomplish the challenging and mammoth task of reducing illegal markets,” it said.
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